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August 2, 2013

Jeremy Siegel Sees ‘Really Great’ Opportunities in Emerging Markets

But The Wharton School professor isn’t bullish on Medicare or Obamacare

Jeremy Siegel, senior investment strategy advisor for WisdomTree, answered investors’ questions on Thursday during a quarterly conference call. Siegel was optimistic about emerging markets, calling opportunities there “really great.” The concerns investors have had, he said, were over the slowdown in China and rising interest rates. However, he said the current-year P/E ratio on emerging markets was 7.78%.

“There are always excuses at the bottom,” said Siegel, who’s also a professor at the University of Pennsylvania’s Wharton School. “These are persuasive, compelling values for long-term investors,” adding that in three to five years, investors may be “very happy with investment in emerging markets.”

Regarding health care, Siegel said, “I’m not certain Obamacare is as disastrous as I fear.” He admitted he didn’t like the bill and wished it hadn’t been passed, but acknowledged that as for the various mandates that might increase the cost of health care for some people, “someone’s paying for all that now.”

On Social Security and Medicare he was much more pessimistic. “We can afford an increase in interest rates on mortgage and personal debt,” he said, “but the biggest long-term negative is Medicare.” The program is “non-viable in its current form,” he said, although it could be five to 10 years before we “feel the bite.”

Social Security is also not viable in the long run, but he said it’s “not in as bad a shape” as Medicare.

Siegel refused to speculate on what direction gold would take. “I’m not a long-term fan of gold,” he said, noting that it got to its $1,600-$1,800 levels because investors feared two things: a massive financial collapse and hyperinflation as the Fed kept printing money. He was confident, though, that the Fed would not let inflation get to such unsustainable levels. He attributed the fall of gold to the “lowering of those probabilities in the minds of a lot of investors.”

He estimated gold could continue to fall if economic growth gets to the 3%-5% range, but said “stocks will way outpace gold in three to five years.”

The global outlook is the biggest positive for the stock market, Siegel said, as more households move to the middle class. Emerging markets account for about half of global GDP and 45% of the profits in the S&P 500 come from abroad.